COURT FILE NO.: CV-09-5758-CP

DATE: 2015-09-29

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Kevin Barwin v. IKO Industries Ltd., Canroof Corporation Inc., and I.G. Machine & Fibers Ltd.

BEFORE: Baltman J.

COUNSEL: Mr. James May and Ms. Linda Visser, Counsel for the Plaintiff

Mr. S. Gordon McKee and Ms. Jill Lawrie, Counsel for the Defendants

HEARD: September 16 & 21, 2015

RULING ON MOTION TO CERTIFY SUBCLASS

INTRODUCTION

[1] This nationally certified class action alleges that the Defendants manufactured and sold organic roofing shingles that are defective and prone to premature failure. For a subclass of residents in five provinces, this action also advances claims based on the respective provincial consumer protection acts.

[2] Over the 30 years that IKO has been supplying shingles it has provided a warranty for manufacturing defects resulting in leaks. The plaintiff has brought this motion to amend the certification order to add a subclass of members who accessed IKO’s limited warranty, received compensation pursuant to the warranty, and signed IKO’s standard release form. The Plaintiff seeks to certify common issues relating to the proper scope of the IKO release and whether the IKO release should be voided on the basis of unconscionability. The Plaintiff also seeks summary judgment on these issues.

BACKGROUND

[3] It is estimated that up to 5 million homes in Canada are covered with IKO’s organic shingles. The uncontradicted evidence[^1] is that approximately 1% of those homeowners - i.e. 50,000 people - have made a claim pursuant to the warranty. IKO stopped selling organic asphalt shingles in 2008 and there are no companies in the industry still making organic asphalt shingles; fibreglass shingles are now the preferred technology, believed to result in longer lasting and better performing shingles.

[4] The warranty has two stages: an initial “iron clad” period (from 1-5 years, depending on the shingle and year of manufacture) during which IKO will pay for both the replacement shingles and the costs of labour to repair or replace them; thereafter, IKO will pay a pro-rated amount of the current value of the singles, with no contribution toward labour costs[^2].

[5] During both periods, the coverage excludes roof disposal, tear off, flashing, metal work, or required repairs to associated defects or damage. Under both scenarios, IKO only pays in respect of the shingles that are currently failing. If the homeowner acts proactively in replacing the entire roof, s/he bears the additional costs.

[6] The limited warranties expressly exclude liability for, amongst other things, variation in colour or shading, improper application of the shingles, or damage or distortion caused by inadequate ventilation. The warranties also do not provide benefits for any claim of faulty design or design defect (as opposed to manufacturing). It follows that to the extent a trial judge finds any alleged problem with shingles was due only to a design defect, any payment of a warranty claim will have been gratuitous.

[7] The limited warranty does not disclose that in order to obtain warranty benefits, the claimant must first release IKO from any and all claims. From 2006 onward the release expressly states that it is made without any admission of liability.

[8] IKO administers a claims process for homeowners who have complaints about IKO shingles. When contacted by a claimant, IKO asks for proof of purchase to ensure the shingles complained of are actually IKO shingles. The homeowner is also asked to provide some limited information about the condition of his or her shingles. Although the warranty is expressly limited to defects that result in water leaks, the majority of claims do not involve a leaking roof, and a number relate to issues that are expressly excluded in the warranties (such as variations in colour).

[9] IKO will accept coverage under the limited warranty if the warranty claim discloses a valid problem with the shingles and there is no obvious non-manufacturing cause for shingle failure. That said, in many cases where homeowners have not established that there was a manufacturing defect resulting in a leak, IKO offers these homeowners various forms and amounts of compensation in full and final settlement of their claims relating to the shingles at issue. Compensation can include replacement shingles, cash settlements, cash to pay for the labour to replace the shingles, as well as unique offers based on individual facts.

[10] In April 2010 – approximately four months after this class action was commenced - IKO began including a term in its release advising claimants that the release may affect or extinguish any legal rights the claimant has in the class action. The plaintiff objected to the language used and the matter came before me. In my ruling dated July 9, 2010, I stipulated that any release provided to a homeowner must notify him/her of the pending class action – for both materials and labour – and that if s/he accepts the compensation offered, s/he may give up the right to participate in the lawsuit. The homeowner was further invited to “seek legal advice” and given the toll free number for plaintiff’s counsel.

[11] By Order dated May 29, 2012, I certified the class of all persons who have owned or leased residences in Canada that have contained IKO organic shingles. In its Statement of Defence, dated December 19, 2013, IKO pleaded amongst its defences that class members who made a warranty claim to IKO related to their shingles and provided a release as part of the settlement “are estopped by the terms of the release from making any claim relating to the shingles that were the subject of the warranty claim.”

ISSUES AND ANALYSIS

[12] As framed in the plaintiff’s materials on this motion[^3], the proposed Release Subclass would consist of :

All members of the Class who submitted to IKO a signed copy of the standard release form (in the form or substantially in the form appended hereto…) in the settlement of a warranty claim pertaining to IKO Organic Shingles.

[13] And the proposed common issues relating to that class would be:

(i) Is the scope of the IKO Release limited to the settlement of the warranty claim, such that members of the Release Subclass are not barred from participating in a court award achieved in the class action in respect of uncompensated damages?

(ii) Should the IKO Release be voided on the basis of unconscionability based on the following grounds: (a) IKO represents that it will provide limited warranty coverage; (b) the limited warranty does not disclose that accessing this coverage requires a relinquishment of rights; and (c) in order to receive benefits under the limited warranty, claimants are required to sign the IKO Release, which on its plain language purports to release IKO from all past, present and future claims?

[14] In my original certification decision on this case[^4] I reviewed the five requirements for certification of a class and the guiding principles in a certification analysis. The parties agree that law is essentially unchanged. Although their arguments on this motion primarily addressed three of those requirements – identifiable class, common issues, and preferable procedure – it was apparent their major conflict concerned whether the proposed claims raise common issues. As the resolution of that issue alone is fatal to the plaintiff’s motion, it shall be the focus of this decision.

[15] The two proposed issues set out above can be summarily referred to as i) scope of the Release, and ii) unconscionability. I shall deal with each in turn.

1. scope of the release

[16] The plaintiff argues that irrespective of the broad wording in the releases signed, the proper scope of the release should be restricted to whatever shingles and labour were actually provided by IKO, such that homeowners who signed a release are not barred from recovering any related, uncompensated damages. To that end the plaintiff seeks to a) certify the scope of the IKO release as a common issue, and then b) obtain summary judgment for the release subclass confining the release to benefits actually received, such that members can pursue damages for unrecovered losses.

[17] As Perell J. observed in Graham v. Imperial Parking Canada Corp., 2010 ONSC 4982[^5], the “core of a class proceeding is the element of commonality; there must be commonality in the actual wrong that is alleged against the defendant and some evidence to support this”: para. 176. The underlying premise of a common issue is that its resolution will avoid multiple fact-finding inquiries or legal analyses. A common issue cannot be dependent upon individual findings of fact that have to be made with respect to each claimant: McCracken v. Canadian National Railway, 2012 ONCA 445, at paras. 7 and 103; Rumley v. British Columbia, 2001 SCC 69, at para. 29.

[18] In Trillium Motor World Ltd. v. General Motors, 2011 ONSC 1300[^6] Strathy J. (as he then was) observed that while a helpful initial approach is to examine “from a bird’s eye view” what the claims of class members have in common, it is ultimately necessary to more closely inspect the proposed issues “to see whether the commonality is illusory and really a collection of individual inquiries”: paras. 99 and 105.

[19] The substantive law relating to the interpretation of a release stipulates that whether subsequent claims fall within the scope of those previously released requires a determination of what was “in the contemplation of the parties” when the release was given. Determining what was in the contemplation of the parties in turn requires consideration of both the words used by the parties and a broad range of surrounding circumstances. The contextual analysis must be an objective one; it matters not what a party to a release personally believed, but rather what a reasonable bystander would say was in the specific contemplation of the parties under the circumstances: White v. Central Trust Co., 1984 3002 (NB CA), [1984] N.B.J. No. 147 (C.A.), at paras. 32-3, approved in Hill v Nova Scotia (Attorney General), 1997 401 (SCC), [1997] 1 S.C.R. 69 at para. 20; Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, paras. 57-8; Strata Plan BCS 327 v. IPEX Inc. 2014 BCCA 237, para. 26.

[20] The key evidence on the issue of commonality is contained in the affidavits of Derek Fee, dated May 29, 2015 and June 26, 2015. Fee was the Warranty Services Manager for IKO from 2006 to 2012. In his affidavits Fee describes significant variation in the context surrounding execution of releases. While IKO follows a general process for the evaluation and settlement of claims, each claim arises under different circumstances and can result in a number of different outcomes. On Fee’s evidence alone there is significant variation in the circumstances leading to a homeowner signing a release. The following examples, reproduced in large part from IKO’s factum[^7], demonstrate this point:

• Variation in the Limited Warranties. Different warranties last for different periods of time, from 10 years to 35 years, with different lengths of iron clad protection periods and different repair and replacement benefits.

• Variation in shingle complaints. Some homeowners complain about all of the shingles on their roof, while others complain about only a portion of them. Some homeowners allege their shingles failed prematurely and make functional complaints, while others have purely aesthetic concerns, such as a change in colour or shade.

• Variation in cause of shingle issue. Different information is provided about underlying causes of shingle problems, such as insufficient ventilation or improper installation (e.g. nailing the shingles too high).

• Variation in compensation provided. Compensation varies from case to case, depending on a range of factors that includes the year the claim is made and the nature of the complaint. Compensation can include replacement shingles, cash to cover the costs of labour, cash to cover the costs of a roof replacement that has already been installed, or another remedy tailored to the homeowner’s specific request. Importantly, the compensation provided can exceed or be different from the benefits provided for under the limited warranty.

• Variation in the specific causes of action mentioned. Some homeowners identify specific causes of action when they complain about shingles, suggesting they are mindful of them when they sign the release. For example, in correspondence with IKO, one homeowner referred to “negligently designed and manufactured shingles cause progressing damage to my roof”, while another hired a lawyer who indicated an intention to enforce his client’s implied warranty claim under the Ontario Sale of Goods Act.

• Variation in the nature and extent of discussions between IKO and the homeowners before signing the release. The evidence indicates such discussions varied significantly from case to case. For examples, some homeowners accept IKO’s first offer, while others exchange several pieces of correspondence before signing a release. Some homeowners contact IKO by phone to negotiate terms of settlement.

• Variation in the involvement of legal counsel. Some homeowners manage the process themselves; others hire lawyers to negotiate on their behalf throughout the claims process, or to sue IKO in Small Claims Court.

[21] In my view Fee’s evidence is both pivotal to this motion and fatal to the relief sought. His affidavit describes significant variation in the factors that influenced the resolution of individual warranty claims. The examples he cites are not rare or isolated cases: he states variations “frequently” arise with respect to the nature of the claim, the negotiations and discussions between IKO and the homeowner before the Release is signed, and the settlement offer ultimately tendered and accepted. Importantly, his evidence stands uncontradicted; he was not cross-examined and there is no conflicting evidence before me from any other source.

[22] Nor is this case atypical. Given the inherently individual and factual nature of the inquiry, courts have regularly rejected proposed common issues that require determination of the scope of a release in the class action context. In Stachniak v. Jurock, 2012 BCSC 601, the Court refused to exclude from the class definition persons who had executed a release: “The determination of the scope and extent of any release and whether it is binding is of course an issue that will be unique to each Class Member, and is therefore an individual issue” (para. 28). In Brooks v. Canadian Pacific Railway, 2007 SKQB 247, the court found that the scope of the release was an individual issue, even though the “Final Releases are the same for each sub-class member” (para. 153). See also Gottfriedson v. Canada 2015 FC 706, paras. 72-79; Buffalo v Samson Cree Nation, 2008 FC 1308, paras. 128-29; Koo v. Canadian Airlines International Ltd., 2008 BCSC 281, para. 59; Controltech Engineering Inc. v. Ontario Hydro, [1998] O.J. No. 5350 (Gen.Div.), para. 25, aff’d [2000] O.J. No. 379 (Div.Ct.).

[23] The cases relied upon by the Plaintiff are distinguishable, and illustrate the need to consider the precise common issue proposed and the type of inquiries engaged in its determination. In Lam v. University of British Columbia 2010 BCCA 325, the class proposed four common issues with respect to the enforceability of a waiver signed by sperm donors at the outset of their visit to the hospital; the waiver released the hospital of any liability in case of damage to their donations.

[24] In considering the four proposed common issues, the Court of Appeal for B.C. focused on whether “there is a need to resort to evidence of matters outside the language of the contract or, alternatively, whether it can be seen that the external context is common across members of the proposed class.” Using that analysis, the court held that only two of the four proposed questions could proceed on a common basis. One of the questions asked whether UBC – who was not named in the contract between the plaintiffs and the hospitals – could rely on the waiver clause in the contracts at issue. The court held that that determination turned on whether the wording of the contract allowed UBC to claim the benefit of the waiver clause: “This is not a case in which individual assessments will be necessary in order to determine whether UBC is protected by the standard form contract.” (paras. 55-58)

[25] The second issue that was allowed to proceed on a common basis was whether the waiver was unenforceable as against public policy. The court held that the factual inquiries necessary to answer this question would focus entirely on the defendant’s conduct and would not engage the individual circumstances of the class members: para. 71

[26] The court found that the question of whether the waiver was enforceable against those who did not sign it turned entirely on the interaction between that person and the staff at the laboratory and therefore would raise “individual issues”, precluding certification: para. 64. Similarly, whether the waiver was unconscionable involved a determination of whether the parties were unequal in bargaining power, which in turn required individual assessments: para. 75

[27] Other decisions relied upon by the plaintiff – Trillium, supra and Dominguez v. Northland Properties Corp., 2012 BCSC 328 – do not support a commonality argument. In Trillium, the court certified common issues relating to the validity and enforceability of a release in a franchise agreement, particularly whether it violated the Arthur Wishart Act (Franchise Disclosure). However, that was essentially a legal question that turned on the legislative provisions in issue, and therefore could be determined “without reference to the conduct of any class member”: para. 124.

[28] As for Dominguez, the common issues were limited to identifying the relevant terms of an employment contract and then examining whether the defendant’s conduct amounted to a breach of those terms: paras. 138-39, 149.

[29] For the reasons above, I find that the proposed scope issue does not meet the commonality requirements of the CPA.

2. UNCONSCIONABILITY

[30] The second common issue proposed by the plaintiff for the Release Subclass is whether the release should be voided on the basis of unconscionability. That question in turn must be assessed in the context of the substantive law of unconscionability.

[31] The burden on a party attempting to rely on the doctrine of unconscionability is high. Although the test has been articulated in various ways, in all cases it requires, at a minimum[^8]:

a) Inequality in the bargaining power of the parties; and

b) A grossly unfair or improvident bargain.

[32] As with the previous analysis relating to the scope of the release, both these elements require consideration of the circumstances surrounding the transaction. With respect to the first element, an assessment of relative bargaining power is a factual determination that depends on a myriad of factors, including the personal circumstances of the releaser (age, education, intelligence and level of sophistication); the dynamics of the negotiations (undue pressure or haste); and whether the releaser had access to independent legal advice[^9].

[33] One cannot assume an inequality of bargaining power exists class wide simply because the agreement is between a consumer and a corporation. Otherwise this branch of the unconscionability test would always be met in cases involving consumers and companies, regardless of other relevant factors such as the customer’s level of sophistication and how the bargain was negotiated.

[34] As for the second element, all aspects of the transaction, not just the language of the release, should be considered in determining whether the transaction was “grossly unfair” or “improvident”. Here, such an inquiry would include consideration of the terms of the warranty, what if any payment was made in exchange for the release, and whether the payment fell within the strict terms of the limited warranty or was to some degree gratuitous.

[35] Most if not all of these factual inquiries are necessarily individual, and will vary from homeowner to homeowner. As noted above, there is signification variation in the settlements reached between IKO and each homeowner. Whether each bargain resulted from inequality or was grossly unfair cannot be extrapolated across a subclass.

[36] The cases relied upon the plaintiff involve circumstances where there is minimal evidence regarding the factual matrix surrounding the impugned agreements. In Wright v. United Parcel Service Canada Ltd., 2015 ONSC 2220 (Div.Ct.), the dispute concerned alleged representations about brokerage fees in agreements signed at the outset of the transaction: paras. 9-10. In McCutcheon v. Cash Store Inc., 2006 15754 (ON SC), [2006] O.J. No. 1860 (S.C.), the proposed common issue involved the narrow question of whether loan transactions that breached the Criminal Code made the agreements per se unconscionable. As Cullity J. observed, “it would not give rise to individual issues relating to the circumstances of the parties and of the negotiations for each loan” (para. 71). A similar rationale was applied in Ayrton v. PRL Financia (Alberta) Ltd., 2006 ABCA 88, para. 11.

[37] As noted above, in Lam, the Court of Appeal for British Columbia considered whether an exclusion of liability in a waiver signed by sperm donors was unenforceable on the basis of unconscionability. Even there, where the factual context surrounding the signing of the waiver was more limited, the court held that unconscionability could only be determined on an individual basis: paras 74-75.

[38] For those reasons I have concluded that the proposed issue of unconscionability also does not meet the commonality requirements of the CPA.

3. ANCILLARY ISSUES

i. The Objector Subclass

[39] I have concluded there is no basis to certify the proposed subclass of individuals who signed the IKO warranty. As part of this motion the plaintiff also sought to certify a subclass within that group – the “Objector Subclass” - consisting of individuals who, before signing the release, objected to its terms and in response received a letter from IKO explaining its warranty policy.

[40] In my view my finding with respect to the proposed release subclass applies equally to any “Objector” subclass. The nature and extent of the negotiations between the sub-class members and the defendant, both leading up to and subsequent to the objection, would have to be examined for each sub-class member. As the scope of the release ultimately provided – and the basis for initially objecting to it - can be influenced by a myriad of individual circumstances, it is unrealistic to expect sufficient commonality for this proposed subclass.

ii.Procedural Implications

[41] Although I have not in these reasons focussed on the issue of preferable procedure, it is worth noting that the parties have already anticipated that individual inquiries will be needed in this case on such issues as causation, damages and limitation periods. Moreover, any release signed in the past by a homeowner may have reflected those factors. Consequently, leaving the release issue to be addressed at the individual issues phase will not materially change the procedure or efficiency of this action.

CONCLUSION

[42] I have concluded that neither of the proposed issues have sufficient commonality within the proposed subclass to merit certification. In light of this finding the pending motion for summary judgment is now moot.

COSTS

[43] The parties are strongly encouraged to settle costs. Failing that, any party seeking costs shall serve and file written submissions on entitlement and quantum within three weeks of the release of these reasons. Written submissions shall be limited to five pages, double spaced, with attached Costs Outline and any authorities.

[44] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to five pages, double spaced, with any authorities relied on attached.

[45] There shall be no reply submissions without leave.

Baltman, J.

Date: September 29, 2015

COURT FILE NO.: CV-09-5758 -CP

DATE: 2015-09-29

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

KEVIN BARWIN

v.

IKO INDUSTRIES LTD., CANROOF CORPORATION INC., and

I.G. MACHINE & FIBERS LTD.

RULING ON MOTION

TO CERTIFY SUBCLASS

Baltman J.

Released: September 29, 2015

[^1]: 2012 Fee Affidavit, para. 35
[^2]: Until 1997, IKO also provided prorated labour.
[^3]: Supplemental Brief of Authorities & Compendium, Tab 12, p. 422
[^4]: 2012 ONSC 3969, paras. 21-23; leave to appeal denied 2013 ONSC 3054 (Div.Ct.)
[^5]: Leave to appeal refused 2011 ONSC 991 (Div.Ct.)
[^6]: Leave to appeal dismissed 2012 ONSC 463 and 2012 ONSC 1443
[^7]: Para. 35
[^8]: Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809 at paras [41-45], leave to appeal refused, 2009 CarswellOnt 2410 (SCC)
[^9]: Cass Fred D., The Law of Releases in Canada (Aurora: Canada Law Book, A Division of the Cartwright Group Ltd., 2006, at pp. 239-241.